We use cookies on this website, including web analysis cookies. By using this site, you agree that we may store and access cookies on your device. You have the right to opt out of web analysis at any time. Find out more about our cookie policy and how to opt out of web analysis.

Development

Low-income countries differ from higher-income countries in that they have large informal sectors, greater prevalence of self-employment and subsistence agriculture, low female labor participation rates and poor labor market conditions. As labor is most often the only asset of someone in poverty, policies that are not associated with job creation may fail to reduce poverty. Contributions to this subject area deal with the potential of labor economics to address those challenges.

The success of public works programs in reducing
poverty depends on their design and implementation—in practice, they do
better as safety nets

Public works programs in developing countries can
reduce poverty in the long term and help low-skilled workers cope with
economic shocks in the short term. But success depends on a scheme’s design
and implementation. Key design factors are: properly identifying the target
population; selecting the right wage; and establishing efficient
implementation institutions. In practice, rationing, corruption,
mismanagement, and other implementation flaws often limit the effectiveness
of public works programs.

Youth bulges are not a major factor explaining
current levels of youth unemployment

The youth population bulge is often mentioned in
discussions of youth unemployment and unrest in developing countries. But
the youth share of the population has fallen rapidly in recent decades in
most countries, and is projected to continue to fall. Evidence on the link
between youth bulges and youth unemployment is mixed. It should not be
assumed that declines in the relative size of the youth population will
translate into falling youth unemployment without further policy measures to
improve the youth labor market.

The brain drain produces many more losers than
winners in developing countries

The proportion of foreign-born people in rich
countries has tripled since 1960, and the emigration of high-skilled people
from poor countries has accelerated. Many countries intensify their efforts
to attract and retain foreign students, which increases the risk of brain
drain in the sending countries. In poor countries, this transfer can change
the skill structure of the labor force, cause labor shortages, and affect
fiscal policy, but it can also generate remittances and other benefits from
expatriates and returnees. Overall, it can be a boon or a curse for
developing countries, depending on the country’s characteristics and policy
objectives.

The institutional structure of pension systems
should follow population developments

For decades, pension systems were based on the
rising revenue generated by an expanding population (demographic dividend).
As changes in fertility and longevity created new population structures,
however, the dividend disappeared, but pension systems failed to adapt. They
are kept solvent by increasing redistributions from the shrinking
working-age population to retirees. A simple and transparent structure and
individualization of pension system participation are the key preconditions
for an intergenerationally just old-age security system.

Motivations for introducing a statutory minimum
wage in developing countries include reducing poverty, advancing social
justice, and accelerating growth. Attaining these goals depends on the
national context and policy choices. Institutional capacity tends to be
limited, so institutional arrangements must be adapted. Nevertheless, a
statutory minimum wage could help developing countries advance their
development objectives, even where enforcement capacity is weak and
informality is pervasive.

Economists once believed firms do not pay to
develop occupational skills that workers could use in other, often
competing, firms. Researchers now recognize that most firms benefit from
investing in apprenticeship training. Evidence indicates that financial
returns to firms vary. Some recoup their investment within the
apprenticeship period, while others see their investment pay off only after
accounting for reduced turnover, recruitment, and initial training costs.
Generally, the first year of apprenticeships involves significant costs, but
subsequently, the apprentice’s contributions exceed his/her wages and
supervisory costs. Most participating firms view apprenticeships as offering
certainty that all workers have the same high level of expertise and
ensuring a supply of well-trained workers during sudden increases in demand
and to fill leadership positions.

Labor market regulation should aim to improve the
functioning of the labor market while protecting workers

Governments regulate employment to protect
workers and to improve labor market efficiency. However, employment
regulations can be controversial, often complicated by opposing ideological
views. Thus, it is important for policymakers in developing countries to
base decisions on empirical evidence of the impacts of these regulations.
The majority of the evidence suggests that most countries have set their
regulations in the appropriate range. But it can be costly when countries
either overregulate or underregulate their labor market.

The right policies can help the self-employed to
boost their earnings above the poverty level and earn more for the work they
do

A key way for the world’s poor—nearly half of
humanity—to escape poverty is to earn more for their labor. Most of the
world’s poor people are self-employed, but because there are few
opportunities in most developing countries for them to earn enough to escape
poverty, they are working hard but working poor. Two key policy planks in
the fight against poverty should be: raising the returns to self-employment
and creating more opportunities to move from self-employment into higher
paying wage employment.